Trade: Short SPGB Jan 2023 vs Long IRISH Mar 2023
Last: 21 bp
Carry/roll in 1y: -3.7 bp
Post 2011 the SPGB - IRISH OTR 5y spread traded between 20bp and 60bp, and we're now at 20bp. Spread wideners could be a way to fade the post-ratings upgrade rally in SPGB's.
Catalonia is an old story, however any meaningful risk premium I think should still be weighted towards Spain rather than Ireland. Ireland's comparatively better fiscal position of +ve primary balances, and a better maturity profile of debt relative to EU, should keep the spread floored at the current range lows of 20bp. NTMA supply is also likely to be capped due to early repayments of IMF loans, and switching of near-term bonds which reduced state refinancing needs to 30 billion euros from 60 billion for the next 3 years, likely reducing issuance related pressure on IRISH.
In a broader peripheral selloff, could also reasonably expect SPGB's to have a higher beta than IRISH, hence quite difficult to see the spread meaningfully compress much further.
1y Carry+roll in bp (IRISH in yellow, SPGB in brown) - red circle marks OTR 5y